7 Totally Avoidable Ways That College Students Tank Their Credit

Sixty-nine percent of recent college grads damage their credit within two years of finishing school. Why? Because when they enter the real world, many grads get their first taste of real-world finances — and make a few mistakes.

But what about before they graduate? Are there dangers that will tank the credit of students before they even know what credit is?

Yep.

Simple mishaps like forgetting to pay a credit card bill can have lasting consequences. (They stay on a credit report for seven years.) And these types of dings are completely avoidable, if only students know what to watch for.

Here are seven ways that college students damage their credit — and expert tips on how to steer clear of them.

No. 1: Charging too much on credit cards

Running up a high credit card balance not only comes with big interest payments, but it negatively impacts credit score.

Credit scores are partially determined by the amount of available credit a user has. By carrying a high balance, students risk a high credit utilization rate — the percentage of their total credit limit that they’re currently using.

A good rule of thumb is to stay below 30% utilization of total available credit.

The penalty for high utilization (a lower credit score) can change once a new, lower balance is reported. This means that a negative ding to your credit score can be immediately improved by paying off high balances before the next statement closing date.

Tips from the Pros: Deborah Sweeney, CEO of MyCorporation.com

It's very easy to accrue credit card debt. College students will go out to eat with friends, go out to clubs, and head to happy hours. Even buying necessities, like textbooks for classes, adds up! The best thing to do is to budget carefully, charge only what you know you can pay back, and pay off your balance in full each month. If you don't already have a job, apply for part-time on-campus opportunities or paid internships nearby so you can keep a steady stream of income, even part-time income, coming in on the side.

No. 2: Applying for too many credit cards

Woah—slow down! Do you really need all of those credit cards? Applying for too many, too quickly, can ding your credit score and send a red flag to creditors and affect future lending.

The smart move is to open one credit card and use it responsibly to build a healthy credit history. Opening several credit cards, or applying for multiple cards all at once, suggests that you might have money troubles and is a red flag for lenders.

If you already own multiple credit cards there’s nothing to worry about. Your credit score won’t decrease just because you already have several of them. In fact, having several cards increases total available credit, ups the credit limit, and makes credit utilization lower (hopefully!).

No matter how many credit cards you have, make sure to keep them all paid down. Also, avoid churning credit cards, which is the process of opening and closing several accounts at once, because it looks suspicious to creditors.

Tips from the Pros: Beverly Friedmann, content manager for Reviewing This

If you're going to apply for your first credit card, it's important to do diligent research first on factors like interest rates and rewards points. A lot of credit institutions market to students and encourage them to open new cards very quickly without spending time researching any background first. It's also important to avoid taking on several credit cards at once, as this can be overwhelming and is ultimately unnecessary for students. By applying for one credit card that offers good reward programs and low interest rates and making responsible payments, you can really set yourself up for financial success and improve your credit score.

No. 3: Missing credit card payments

Students have a lot on their plate. Between classes, papers, exams, and clubs, they might lose track of when a credit card payment is due. Unfortunately, a forgotten payment will lower their credit score, even if it’s the first time it’s happened or if it’s a simple mistake. Creditors might be lenient in emergency situations, but more often than not, a missed payment is the responsibility of the account holder.

Don’t be the student with a delinquent or default credit card account. Both delinquency and default are terms that describe the same problem: missing payments. Late payments move an account into delinquent status, while default occurs when a borrower makes consistent late payments and falls behind their repayment obligation. Both can take a serious toll on a student's credit score.

Students should work with their creditor to prevent these scenarios from occurring. There are systems in place to help borrowers who face financial hardship or other emergency situations.

Tips from the Pros: Beverly Friedmann, content manager for Reviewing This

When students take on credit cards, it's incredibly important to pay off bills in a timely manner. It's also important to not place charges or services on credit cards that you know you can't immediately pay back. By paying off credit card bills to borrowers in a responsive manner, students can begin to build good credit and qualify for other loans and cards in the future. Charging too much on credit cards or missing payments can be extremely detrimental to your credit score, so it's very important to be responsible with the use of any cards you take on.

No. 4: Missing student loan payments

Just like with credit cards, an unexpected financial emergency, job loss, or simple error could cause a student to fall behind on student loan payments.

It’s important for students to know that loan repayments typically don’t start until after a borrower graduates, drops out, or falls below part-time enrollment. Following a six-month grace period, students should prepare for their loan repayments by budgeting the amount they'll owe into their monthly expenses.

Beyond a credit score, banks and issuers look at loan payment history when evaluating borrowers on their creditworthiness, risk profile, and future repayment ability. A poor payment history might suggest that the borrower isn’t able to pay their financial obligations. The result? Fewer financial options.

Keep in mind that the same rules of delinquency and default apply to loans as they do to credit cards. In fact, nearly 40% of borrowers are expected to default on their student loans by 2023, according to new data from the Brookings Institute. Missing payments are a slippery slope leading to bad credit scores and should be avoided at all costs.

Tips from the Pros: Beverly Friedmann, content manager for Reviewing This

Making responsible student loan payments can feel challenging and overwhelming, but it's important to establish a plan with your borrowing institution at a rate that you can afford. As long as you ensure you make monthly payments, you won't risk lowering your credit score by potentially defaulting on loans or having payments begin to stack up. It's always advisable to make the highest payments per month you can afford to lower your interest rates by as much as possible.

No. 5: Co-signing a loan or credit card

Co-signing can be a good thing when done right. For instance, parents co-signing an apartment for their child with limited credit history will enable the student to get approved as a tenant.

On the other hand, being a co-signer for an untrustworthy friend means that the co-signer is financially liable for the mistakes of the person.

Simply being a co-signer doesn't mean that your credit score will take a dip. However, if you co-sign for a friends credit card, the charges on credit (even if they're not delinquent) may affect your credit score by increasing your credit utilization rate.

Tips from the Pros: Justin Lavelle, chief communications officer for BeenVerified.com

Having a hard time with even starting to build your credit? Maybe have a close family member or friend that you trust and who trusts you to help you by cosigning. This will at least get your credit started.

No. 6: Not paying rent

Will skipping out on a rent payment affect your credit score? Maybe not, but your might suffer other financial consequences. Plus, a positive rental recommendation is out of the question.

By missing rent payments, renters have breached their lease agreement. Some landlords may opt to report the missing payment to a credit agency, and this will drag down the renter’s credit score.
But even if the landlord doesn’t file a report, the renter isn’t off the hook just yet. A landlord may decide to take their negligent tenants to small claims court, where they can be awarded their right to receive rent from a judge.

Tips from the Pros: Beverly Friedmann, content manager for Reviewing This

By making responsible rental payments every month, you help boost your credit score and secure a stable housing situation. Missing rent payments after you've signed a lease agreement can be detrimental to your credit score, and it can also result in serious consequences like eviction.

No. 7: Not paying utility bills

Utility bill payments aren’t typically reported to the credit bureaus. This means that in many cases, missed payments won’t be reported to the credit bureaus and thus won’t impact your credit score.

The downside of this is that because payment history typically isn’t reported, on-time payments don’t get reported either — and students won’t get credit for them with the credit bureaus.

If you stop paying a utility bill, don’t assume that utility companies will ignore the overdue account. To the contrary, a utility company will eventually stop reaching out to the account holder and turn the debt over to a debt collector. Once an account goes into collections it will negatively impact a student’s credit score.

Tips from the Pros: Beverly Friedmann, content manager for Reviewing This

It's always important to be aware of making timely rental and utility payments, especially if you're living off-campus or on your first lease agreement…. Monthly rental and utility payments should be at the top of your monthly budgeting list.

Bottom Line

These seven mistakes are easily avoidable, but only if you know what to watch for. So be vigilant — don’t let a silly mishap wreck your credit for years to come.

Beverly Friedmann serves as a content manager for the consumer website ReviewingThis. She has a background in digital marketing and sales management and an undergraduate degree in psychology and sociology, with a minor in English literature. On a personal level, she enjoys community service, spending time with friends, yoga, and grew up doing competitive gymnastics.

Justin Lavelle is the chief communications officer for BeenVerified.com, a leading source of online background checks and contact information. It allows individuals to find more information about people, phone numbers, email addresses, property records, and criminal records in a way that’s fast, easy, and affordable. The company helps people discover, understand, and use public data in their everyday lives.

Deborah Sweeney is the CEO of MyCorporation.com which provides online legal filing services for entrepreneurs and businesses, startup bundles that include corporation and LLC formation, registered agent services, DBAs, and trademark and copyright filing services.